Rise Of The 60-Year Leasehold New Home

Recently, a GLS site near Upper Bukit Timah Road with a 60 years leasehold tenure was actively bidded which is the shortest lease tenure land site ever put on sale in a GLS tender. There were 23 bidders for this site which was unexpected as the lease is unusally shorter than the standard 99 years.

The eventual winner for this land tender was World Class Developments which is a property development unit of jewellery company Aspial Corp.

This site with an land area of 152,848 sq ft which is zoned for residential or retirement housing was sold for $73.8 million.

There were speculation that World Class will be pricing the new property for this site at an average sweet spot of $1 to $1.2 million price point which most buyers are comfortable with. New shorter lease projects may be yet the next big thing, as developers will be able to price their products at affordable per square foot basis at perhaps about 20% discount below a similar configured 99-year leasehold apartment.

For a purchaser buying for retirement need, he will only need to spend $800,000 compared to $1 million for a new 99-year leasehold home, thus there will be a saving of $200,000 which can be used for other expenditure, investment or retirement needs.

However, if one purchase such shorter lease property at a young age and after 30 years later, there might not much equity for this type shorter lease property due to accelerated depreciation as the lease run out.

The positive aspect is that the investment yield will be much better than a 99-year leasehold property due to its lower capital value. However again, the interest charge on such property may be higher as financial instituions may not be willing to finance this type of property as the lease run out.

With the encouraging bids from interested developers, our government may release more land with such shorter lease tenure. In fact, 50 or 60 year lease land site is a norm in Hong Kong.

2 Jan 2013